Chat bots, AI and superannuation

From InvestorDaily.

Long criticised as a laggard in digital technology, 2017 marks the year the super industry got serious says Willis Towers Watson.

Since 2013, we’ve surveyed superannuation funds on their use of digital. Four short years ago, the rate of uptake was slow and funds didn’t allocate significant budget to invest in technologies aimed at member education or engagement.

In 2017, our study showed 94 per cent of funds are increasing their use of digital – and their budgets – with a focus on developing new technologies and refining existing ones.

Nonetheless, the increased investment is still being stretched across a wide range of tools.

The big jump in this survey was in the use of social media – 88 per cent of funds in 2017, up from 47 per cent in 2015 and 35 per cent in 2013.

The reason? Members are driving the platforms that funds are using, rather than the other way around.

Social media is proving valuable to funds to leverage sponsored content and build brand awareness and trust – even if they aren’t talking about superannuation specifically.

It’s a big step forward to making super more approachable and relevant to the widest possible demographic.

But social media is not new – Facebook was founded 13 years ago, while Twitter launched in 2006. How funds embrace innovations that leverage social media platforms is something they need to address on a biannual basis at a minimum. This is a dynamic medium where a set-and-forget strategy will not work.

Innovation means different things to different funds. Compared to previous surveys, fewer funds consider themselves to be laggards. Early adopters of digital technology grew from 24 per cent to 31 per cent in 2017.

No-one is denying the clearly visible benefits of digital in creating personalised and targeted communication. But funds are questioning what needs to come next.

Regulation and compliance have always been issues with super funds in adopting technology and while some funds have started to use chat bots and are actively exploring AI, how exactly this may be used is still something for the future.

Problem solving a member’s simple queries using a chat bot seems like an effective use of technology but the industry remains convinced there will always be a need for human interaction.

Other financial services industries have embraced aspects of AI. StartUpCover, a joint venture between Willis Towers Watson and insurer CGU, launched a world-first Facebook Messenger chat bot this year.

It provides 24/7 insurance information and indicative quote within five minutes of messaging.

Clearly the technology is there to be leveraged, and its application for the superannuation industry is being worked through.

The 2016 Global Mobile Messaging Report, published by US communications company Twilio, showed that 46 per cent of consumers would like to learn about new products through messaging, while 85 per cent of consumers would like to reply to a message from a business or engage in conversation, noting that messaging is not a one-way communication channel.

Further research from the Centre for Generational Kinetics shows 41 per cent of Millennials would describe themselves as ‘truly satisfied’ if they could use messaging or SMS to connect with companies where they do business.

So, are super funds ready to support two-way communication via messaging? It’s another important question to be addressed.

Is there a digital saturation point?

We hosted a roundtable with fund marketing officers, heads of member engagement and digital experts where they talked a lot about following digital trends more broadly and using this as a way to influence their own future direction.

This means funds need to utilise their internal resources to be watching, learning and trialling new technologies that become popular and to assess what sticks with members.

Following the broader digital trends can be beneficial. It allows funds not to need to invent their own technology but rather adapt technology that is already being utilised.

But technology can’t just be used for technology’s sake. Like the debate over the use of apps by super funds, it needs to contribute to a fund’s member experience and create positive outcomes for their retirement strategy to assist funds to justify their investment in a new technology.

Do members want to check their super like they check their bank account balance?

With so much development in the digital space over the past five years, it makes sense that funds are continuing to test a number of digital options to see what works best for their members.

It’s a challenge for funds, servicing a huge and diverse group of members with varying attitudes, habits and priorities.We know that superannuation isn’t like other services. You don’t need to check your super account daily or weekly like you do with a bank account.

With an ageing demographic, and more members in retirement spending their savings, we’ll see a change in this behaviour.

However, long-term engagement, trust and loyalty are all things funds crave. So finding the right balance of tools that provide this to members is critical. A social media strategy is particularly crucial here.

Personalising super communication will continue to grow to a point where it is the norm rather than the exception.

Will data analytics have a greater role to play?

Data analytics will feed funds’ knowledge to understand the best tools to use for their members and where to focus their budgets. The use of data analytics can only increase.

The more funds can learn about how the digital tools their members are using are driving member outcomes, the more they can target their communication to make it more personal and engaging. Data analytics can reveal what is working already and what can be improved.

It will also assist funds in managing resources and budgets.

Digital tools can also be used in a more targeted manner, as we have seen with social media, which tends to be used for brand awareness rather than as a member education tool.

Do we have to be everywhere for everyone?

Consolidation of digital tools will come – it has to. However, this will bring a greater focus on an omni-channel approach to ensure a more consistent and co-ordinated member experience.

In the short term, funds will continue to explore a range of digital tools, but longer term, given limited resources, only those that drive member engagement and contribute to a fund’s overall strategy will survive.

What will this look like? AI, chat-bots or something we haven’t thought of yet? Watch this space. What we do know is there will be more to come.

Rick Body is head of digital solutions Australasia and Asia for Willis Towers Watson.

Could we nationalise the superannuation system even if we wanted to?

From The Conversation.

Two decades of reforms, reviews and inquiries appear to have better served the financial sector than the interests of super fund members.

At first glance Australia’s 214 major superannuation funds are performing well, giving a healthy 9.2% return on the A$1.4 trillion we have deposited with them. But there are issues with our publicly mandated but privately controlled superannuation system.

Admittedly, our current system provides a range of benefits – increasing retirement incomes, giving us plenty of choice between funds (in theory if not in practice), and investing in the Australian economy.

But the operating expenses for Australian funds consistently and significantly outstrip those in other OECD countries. Fees are high and there is little evidence that higher fees lead to better services.

In 2009 the Inquiry into Financial Products and Services in Australia recommended there be an annual check on the quality of advice. The only superannuation-related survey that has been undertaken to date found that 39% of advice was poor and only 3% was good quality. No further surveys have been conducted.

Australians are forced to contribute to superannuation funds, without the right of exit, but they aren’t protected from high fees or bad investment strategies. A nationalised superannuation system, or one that combines private and public super funds, could simplify the system and reduce costs.

Baked in problems

Australia’s system wasn’t originally intended to be entirely privately-run, which has left us without many necessary protections (such as appropriate disclosure of fees and charges).

Australia was almost alone among OECD countries in reaching the 1980s with no national employment-related retirement income scheme. There had been at least ten attempts to set one up between the 1890s to the 1970s. All failed to win support from employers, existing superannuation funds, life offices and state governments.

An additional attempt was made in the last Parliament of the Liberal government in 1972. The incoming Whitlam Labor government also tried to introduce a national superannuation scheme in 1973, establishing the Hancock inquiry.

Consistent with its recommendations, the Hawke/Keating Labor government intended to move forward with a national scheme. However, against the backdrop of past nationalisation failures, recession, high inflation, a wage freeze, strikes, declining union membership, and the increasing discontinuation of superannuation products, the government instead privatised it.

Thus, the Hawke/Keating Labor government was a major winner of a privatised scheme gaining electoral support from a coalition of private interests.

Absent from this coalition were the fund members. There is no evidence of any consultation process with either the fund members themselves and/or any consumer representative groups prior to the development of our present, privatised regime.

The Superannuation Guarantee scheme introduced a minimum employer contribution to superannuation for most employees. This scheme was a windfall for the financial sector, as they received a guaranteed, trillion-dollar stream of superannuation contributions to look after with no exit rights for members.

The union movement would also appear to be a winner from privatisation. The privatised system allowed the unions to expand the number of their existing industry funds to earn more administration and investment-based fees. The 41 industry funds currently hold A$545.2 billion, compared to the A$587.8 billion held by the 128 for-profit retail funds.

It could be argued that the losers in this mandatory regime are the fund members who were marginalised from the outset. As it was originally intended to be a government-run system, many of the administrative processes necessary for an efficient and effective privatised system were originally absent.

For example, there were no codified accounting, reporting and disclosure requirements. No mandatory requirements for the disclosure of fees and charges. No codified audit report requirements. And, for nearly a decade, the regulator did not have appropriate constitutional powers to enforce civil and criminal penalties against non-complying trustees.

Two-decades of reforms have remedied the constitutional, auditing and accounting issues. But significant issues remain, including limitations in the disclosure of fees and charges and the related issue of conflicted payments.

Alternative super systems

In theory, there are alternative superannuation models for Australia to consider. For example, there are nationalised schemes such as the government-run Canadian Pension Plan.

All of the funds from the Canadian Pension Plan are invested by Canada’s Pension Plan Investment Board, which operates with a clear mandate to maximise returns, without undue risk of loss.

Nationalising the superannuation industry in this way appears to have benefits – members would receive the same return for equal contributions, employers and employees would only have to deal with one fund, and the amount spent on running the fund (for example on administration, marketing) would be reduced.

There is also the option of adopting a combined system, as in Norway, which features both national and privately-run superannuation funds.

In reality however, given the coalition of vested interests that have forged Australia’s existing, publicly mandated, privatised system, only the voice of the members themselves can force an honest and open debate on this important issue.

Author: Suzanne Taylor, Lecturer/Co-Ordinator, Queensland University of Technology

Assets of world’s largest fund managers passes US$80 trillion for the first time

Total assets under management (AuM) of the world’s largest 500 managers grew to US$ 81.2 trillion in 2016, representing a rise of 5.8% on the previous year, according to latest figures from Willis Towers Watson’s Global 500 research.

Looking at the Australian players in the global list, Macquarie Group was in 52nd place with assets of US$362,511m, Colonial State was at 102 with US$147,154m, AMP Capital was at 120 with US$119,476m, BT Investment at 182 with US$60,699 and QIC at 193 with US$57,455m.

The research, which takes into account data up to the end of 2016, found that AuM for North American managers increased by 7.7% over the period and now stand at US$ 47.4 trillion, whilst assets managed by European managers, including the UK, increased by 2.8% to US$ 25.8 trillion. However, UK-based firms saw AuM decline for the second consecutive year, falling by 4.5% in 2016 to US$ 6.3 trillion.

Although the majority of total assets1 (78.4%) are still managed actively, its share has declined from 79.7% from end of last year as passive management continues to make inroads.

Luba Nikulina, global head of manager research at Willis Towers Watson, said: “It is encouraging to see a return to growth in total global assets, suggesting that managers are finding success in attracting investors towards innovative solutions to achieve superior risk-adjusted returns. Whilst passive assets remain significantly smaller than actively managed assets, the proportion of passively managed assets has grown from 16.5% to 21.6% over the last five years alone. We expect that this trend will continue to put downward pressure on traditional fee structures, particularly amongst active managers seeking to remain competitive and to maximise value to investors.”

The 20 largest asset managers experienced a 6.7% increase in AuM, which now stands at US$ 34.3 trillion, compared to US$ 26.0 trillion ten years ago and US$ 20.5 trillion in 2008. The share of total assets managed by this group of 20 largest managers increased for the third year in a row, rising from 41.9% in 2015 to 42.3% by the end of 2016. Despite this, the bottom 250 managers experienced a superior growth rate in assets managed, rising by 7.3% over the year.

As with previous years, equity and fixed income assets have continued to dominate, with a 78.7% share of total assets1 (44.3% equity, 34.4% fixed income), experiencing an increase of 3% combined during 2016. Continuing from the strong growth they experienced in 2015, assets1 in alternatives saw a 5.1% increase by the end of 2016, closely followed by equities at 4.1%.

Luba Nikulina said: “Alternatives continue to grow in popularity, with investors remaining under pressure to find effective means of diversification in an environment of lower expected returns from traditional asset classes. These strategies often come with greater complexity and require superior risk management. We see this as linked to the growth in assets managed by managers in the bottom half of our list, suggesting that investors favour smaller investment houses with specialist investment skills.”

“Our research has also highlighted awareness in sustainable investing, with 78% of the firms surveyed acknowledging a growing interest from their clients for these sorts of strategies as they continue to look for ways to add value for clients,” said Luba Nikulina.

Whilst BlackRock retains its position at the top of the manager rankings for the eighth consecutive year, further insight shows the main gainers, by rank, in the top 50 during the past five years include, Dimensional Fund Advisors (+31 [76 to 45]), Affiliated Managers Group (+20 [52 to 32]), Nuveen (+16 [36 to 20]), New York Life Investments (+15 [55 to 40]) and Schroder Investment Management, (+15 [59 to 44]).

The world’s largest money managers

Ranked by total assets under management, in U.S. millions, as of Dec. 31, 2016

Rank Manager Country Total assets
1 BlackRock U.S. $5,147,852
2 Vanguard Group U.S. $3,965,018
3 State Street Global U.S. $2,468,456
4 Fidelity Investments U.S. $2,130,798
5 Allianz Group Germany $1,971,211
6 J.P. Morgan Chase U.S. $1,770,867
7 Bank of New York Mellon U.S. $1,647,990
8 AXA Group France $1,505,537
9 Capital Group U.S. $1,478,523
10 Goldman Sachs Group U.S. $1,379,000
11 Prudential Financial U.S. $1,263,765
12 BNP Paribas France $1,215,482
13 UBS Switzerland $1,208,275
14 Deutsche Bank Germany $1,190,523
15 Amundi France $1,141,000
16 Legal & General Group U.K. $1,099,919
17 Wellington Mgmt. U.S. $979,210
18 Northern Trust Asset Mgmt. U.S. $942,452
19 Wells Fargo U.S. $936,900
20 Nuveen U.S. $881,748

Source: P&I/Willis Towers Watson World 500

Half Of Pre-Retirees Risk Significant Shortfalls

Almost half of Australians between the ages of 50 and 70 are at risk of falling short of a comfortable retirement, according to new research released by MLC.

The research explored the thoughts and habits of the “forgotten” low super balance Boomers, and revealed nearly half (43 per cent) of those surveyed admitted to having a superannuation balance of less than $100,000.

Additionally, 33 per cent of this age group reported having $50,000 or less in their super account, falling extremely short of what is recommended a single retiree needs for a comfortable retirement (over $545,000).

Lara Bourguignon, General Manager of Customer Experience, Superannuation at MLC, believes that all Australians should enjoy retirement – regardless of their financial situation.

“Australia has a high level of poverty among retirees, and we believe that super is one of the greatest tools we have to change this.”

“While these results are concerning, we want to remind people in this age group that it’s not too late for them to take action and better understand their holistic wealth position as they prepare for retirement.”

Ms Bourguignon said there are a number of steps Australians can take to maximise their super balance in their final years of work, and to structure their portfolios to make the most of what they do have when they’re in retirement.

“For example, we know some of the people in this age group have other assets such as property in their name beyond super, which is an important factor for them to consider when planning for retirement.”

“If they don’t have other assets, engaging with their super fund may prove to be a cost effective way for them to access advice in lieu of seeing a financial adviser,” Ms Bourguignon said.

Of those with a retirement saving of under $100,000, the research also revealed 42 per cent only became concerned about the balance of their retirement savings in their 50s, while over 30 per cent admitted they never checked their super balance.

“Sticking your head in the sand will often lead to unnecessary stress”.

Super fees set to become more transparent and easier to understand

ASIC says from 30 September there will be significant changes to the way superannuation and managed investment funds disclose the fees and charges that affect consumers.

The new requirement follows the Australian Securities and Investments Commission (ASIC) identifying a significant amount of under-reporting of fees, as well as considerable inconsistency in the way fees and charges are listed by funds. ASIC found this made it very difficult for consumers to understand how much they were paying, what they were paying for, and to compare funds.

The changes will help bring industrywide consistency to exactly what must be included in the product disclosure statement (PDS). And, from later in 2018, the changes will also ensure that the information in PDS and in periodic statements will match more clearly. As a result, consumers will be better able to understand the fees and costs. The consistency and more accurate disclosure of fees will also help ensure that funds are competing more fairly.

ASIC also noted that the fees consumers are being charged may reflect the type of investment, with some higher cost investments also bringing higher returns in the long term. This change to reporting will also make it easier for consumers to identify when this may be the case.

ASIC will make amendments to provide more certainty around the relevant requirements and undertake compliance checks throughout the industry, to ensure funds are meeting their obligations.

Following extensive consultation with industry on the introduction of these changes, ASIC has agreed to extend the deadline for disclosure of property operating costs in the investment fee or indirect costs to 30 September 2018. The extension on this component will help provide additional time for discussions between ASIC and industry about how to calculate these fees.

ASIC has also extended the deadline for certain disclosures in periodic statements that require changes to the internal systems of funds. This is to ensure the change can be made in a cost effective manner.  Those requirements will have effect for annual statements for the year ending 30 June 2018.

Background

These changes to reporting of superannuation and managed funds fees arise from ASIC’s concerns with inconsistency and underreporting of fees. This issue was investigated in Report 398 Fee and cost disclosure: Superannuation and managed investment products, which identified the following key issues:

  • underdisclosure of fees and costs associated with investing indirectly through other vehicles
  • tax treatment of fees and costs
  • performance fees
  • under disclosure of management costs

Following the release of Report 398, in November 2015 ASIC issued updated Regulatory Guide 97 Disclosing fees and costs in PDSs and periodic statements to bring greater consistency and transparency to fees reporting. These changes are due to come into force from 30 September 2017, as outlined above.

The Future: Save More, Work Longer

According to the IMF Blog, Young adults in advanced economies must take steps to increase their retirement income security. Younger generations will have to work longer and save more for retirement.

But with flat income, high debt, and potentially rising interest rates, saving we think may be an impossible task, which will redefine the concept of retirement altogether.

Public pensions have played a crucial role in ensuring retirement income security over the past few decades. But for the millennial generation coming of working age now, the prospect is that public pensions won’t provide as large a safety net as they did to earlier generations. As a result, millennials should take steps to supplement their retirement income.

Pensions and other types of public transfers have long been an important source of income for the elderly, accounting for more than 60 percent of their income in countries that are members of the Organisation for Economic Co-operation and Development (OECD). Pensions also reduce poverty. Without them, poverty rates among those over 65 also would be much higher in advanced economies.

Pressure on pensions

But pensions are also costly to provide. Government spending on pensions has been increasing in advanced economies from an average of 4 percent of GDP in 1970 to close to 9 percent in 2015—largely reflecting population aging.

Population aging puts pressure on pension systems by increasing the ratio of elderly beneficiaries to younger workers, who typically contribute to funding these benefits. The pressure on retirement systems is exacerbated by increasing longevity—life expectancy at age 65 is projected to increase by about one year a decade.

To deal with the costs of aging, many countries have initiated significant pension reforms, aiming largely at containing the growth in the number of pensioners—typically by increasing retirement ages or tightening eligibility rules—and reducing the size of pensions, usually by adjusting benefit formulas. Since the 1980s, public pension expenditure per elderly person as a percent of income per capita—the so-called economic replacement rate—has been about 35 percent. But that replacement rate is projected to decline to less than 20 percent by 2060.

This means that younger generations will have to work longer and save more for retirement to achieve replacement rates similar to those of today’s retirees.


Working longer

To close the gap in the economic replacement rate relative to today’s retirees, one option for younger individuals is to lengthen their productive work lives. For those born between 1990 and 2009, who will start to retire in 2055, increasing retirement ages by five years—from today’s average of 63 to 68 in 2060—would close half of the gap relative to today’s retirees. A longer work life can be justified by increased longevity. But prolonging work lives also has many benefits. It enhances long-term economic growth and helps governments’ ability to sustain tax and spending policies. Working longer can also help people maintain their physical, mental, and cognitive health. However, efforts to promote longer work lives should be accompanied by adequate provisions to protect the poor, whose life expectancy tends to be shorter than average.

Saving more

Simulations suggest that if those born between 1990 and 2009 put aside about 6 percent of their earnings each year, they would close half of the gap in economic replacement rate relative to today’s retirees. In practice, relying on people’s private savings for retirement requires a hard-to-achieve mix of fortune and savvy. First, individuals need continuous and stable earnings over their careers to be able to save sufficient amounts. Second, workers would have to be able to decide how much to put aside each year and how to invest their savings. Third, the risks from uncertain or low returns are borne by individuals. Finally, workers would have to decide how fast to consume their savings during retirement. These are all complex decisions, and people can make mistakes at each step along the way.

Time to cope

For younger generations, acting early is crucial to ensure retirement income security, especially because longevity gains are projected to continue. As millennials start to enter the workforce, retirement might be the last thing on their mind. But with many governments retrenching their role in providing retirement income, younger workers need to work longer and step up their retirement savings.

Governments can make it easier for individuals to remain in the workforce at older ages by reviewing taxes and benefits that might favor early retirement. Nudges to encourage workers to save can also help, for example by automatically enrolling them in private retirement saving plans. For example, starting in 2018, the United Kingdom will require employers to automatically enroll workers in a pension program. Boosting financial literacy and making the workplace more friendly to older workers can also be part of the solution.

The good news for younger workers is that retirement is some four decades away, allowing time to plan for longer careers and to put money aside for later. But they must start now.

ISA accuses banks of dodging FOFA

From InvestorDaily.

The industry super lobby has accused the major banks of attempting to evade the FOFA regulation within their superannuation products.

Industry Super Australia (ISA) recently posted a submission to the Productivity Commission’s inquiry into the efficiency and competitiveness of Australia’s superannuation system.

ISA called for a crackdown on big banks and other for-profit entities who, it said, have been allowed to exploit superannuation fund members in the name of increasing sales.

The lobby group said the current superannuation system is like FOFA – where for-profit companies like the big four banks have been able to circumnavigate or “work around” legislation and exploit consumers for increased sales and insurance commissions.

“From inception, FOFA has been subject to substantial lobbying efforts that seek to weaken it, and for-profit entities have immediately sought to ‘work around’ and adapt to FOFA in a way that maintains as much of their lucrative businesses as possible,” ISA said in the submission.

“For so long as the superannuation system allows participation by entities that have a strong culture of prioritising themselves rather than serving others, this will happen. The inquiry’s proposed default [superannuation] models will certainly be subject to the same dynamic.”

ISA pointed to exemptions in FOFA which currently “allow bank staff to earn volume-related bonus for selling superannuation under general advice”.

FOFA also “allows the payment of commissions on individual life and income protection insurance on policies paid for out of choice superannuation products which provides strong financial incentives for advisers to switch members out of default superannuation products,” ISA said.

ISA pointed to research from the Roy Morgan Superannuation and Wealth Management in Australia 2011 and 2015 reports which showed the big banks shifting away from selling products via financial advisers and an increase in direct sales to consumers instead.

“This activity has almost doubled across the four major banking groups from 10 per cent in the 2011 Report, compared to 19 per cent for the three years to December 2015,” ISA said.

“[This takes] advantage of the lower levels of consumer protection outside personal advice to aggressively sell super directly.”

ISA said regulation and further competition are not the answers for cracking down on misconduct from for-profit entities in the superannuation sector.

“Regulation alone has never been enough to ensure good behaviour. Regulation is particularly unreliable in relation to the finance sector because that sector is especially vigorous in its efforts to influence policy makers,” ISA said.

There is a concern that “each of the inquiry’s proposals seeks to remove superannuation from the industrial system, and envisions private sector, for-profit financial institutions bidding for and winning pools of default superannuation members,” the submission said.

“Such an outcome will deliver to the for-profit part of the super system a ready-made, government-sanctioned, and generally disengaged customer base at a very low acquisition cost.”

Instead there needs to be a focus on culture and values within organisations ISA said.

“The reason why some funds tend to consistently perform well, and prioritise members, is an amalgam of culture, values, institutional objectives, and governance.”

ANZ pays further $10.5 million to consumers for OnePath breach

The Australian Securities and Investments Commission (ASIC) has confirmed an additional $10.5 million in compensation for 160,000 superannuation customers who were affected by breaches within the OnePath group between 2013 and 2016.

ASIC has been monitoring the resolution of a number of OnePath breaches. This has resulted in ANZ (the parent company of OnePath) providing further compensation, mainly in relation to incorrect processing of superannuation contributions and failure to deal with lost inactive member balances correctly.

ASIC has also confirmed the finalisation of all recommendations made by an independent review of OnePath’s business activities. The final two recommendations were the last to be implemented after an independent review of OnePath’s compliance functions was announced in March 2016.

The independent review was sought by ASIC, following ANZ reporting a number of significant breaches. The review addressed OnePath’s life and general insurance, superannuation, and funds management activities.

OnePath has contacted the majority of affected customers and finalised the majority of these additional compensation payments. Customers who have queries about whether they are owed compensation or another form of remediation should contact OnePath on 133 665.

ASIC will continue to monitor the breaches reported to us by ANZ until the matters are resolved, including any remediation where appropriate.

Background

The ANZ Group’s subsidiaries with AFS Licences include OnePath Custodians Pty Ltd, OnePath Life Limited, OnePath Funds Management Limited and OnePath General Insurance Pty Limited.

From early 2013 to mid-2015 around 1.3 million OnePath customers were affected by breaches requiring refunds and compensation of around $4.5 million, rectifications and other remediation of around $49 million.

An ANZ spokesperson said:

In March last year we estimated we would reimburse about $4.5 million in relation to compliance breaches that affected 1.3 million customers.

Following detailed analysis this has increased $10.5 million impacting 160,000 customers.

While this work is ongoing, we don’t expect the majority of these customers to receive significant further reimbursements.

As soon as we became aware of issues in 2013 we reported these breaches to ASIC and have fully cooperated with their review of this matter.

In January 2016 we appointed PwC to conduct an independent compliance review, and reported the findings of that review in December 2016.

Home saver scheme may eat into your super before buying you a house

From The New Daily.

The Turnbull government’s plan to allow first home buyers to direct up to $30,000 of superannuation savings into a housing deposit could end up draining super accounts and costing savers more than using a traditional bank account.

Stephen Anthony, chief economist with Industry Super Australia, said the First Home Super Saver Scheme, sold by the government as a housing affordability measure, would offer limited benefits to first home savers and threaten retirement savings.

The plan, introduced in the May budget, allows first home buyers to salary sacrifice up to $30,000 into their super account at a maximum rate of $15,000 a year.

The savings are taxed at the super rate of 15 per cent on the way in, which is lower than the 19c bottom tax rate and so gives you a benefit. When funds are withdrawn they are taxed at the marginal rate of the saver less 30 per cent.

This is where the plan strikes trouble. The ATO doesn’t simply tax the money you take out when you buy a home, it will assume you made a return on it that is equivalent to the bank bill rate (what banks pay professional investors) plus three per cent.

That guaranteed return is added to the amount you withdraw, which is fine if your super fund is earning that amount or more. But in years when your super fund makes less than that benchmark, money is effectively being taken out of the rest of your super to make up the figure the taxman wants you to have.

“Super funds will be forced to dip into compulsory savings to cover shortfalls in ‘guaranteed’ returns, leaving people with much less at retirement,” Dr Anthony told The New Daily.

Those transfers from your super to fund your home deposit can be significant. For the year to June 2016, for example, using the ATO’s formula would have seen you transfer an average of 2.3 percentage points of your general super returns into your deposit savings account, ISA research says.

There are other problems with the proposal, due to go before Parliament in the second half of the year, as well. While it might look attractive at first blush, the savings you think you’re making are less than they appear.

The super contributions tax will take a significant bite from your fund.

“People must also understand that after paying super contributions and earnings tax, the $30,000 put into the scheme could be worth as little as $25,000 on withdrawal,” Dr Anthony said.

People are likely to forget that if they had saved the money into a high interest savings account they would have avoided to the contributions and earnings tax as well as getting interest on their deposit.

For people carrying HECS/HELP debt from their tertiary education days, the benefits are even less. That’s because they have to pay back their debt once they hit relevant income targets.

Add all that together and the overall benefits from the scheme shrink significantly, as the chart above demonstrates.

Eva Scheerlinck, CEO of Australian Institute of Superannuation Trustees, said the plan is in conflict with the aim of super because it diverts benefits to current housing needs.

“The use of a super fund for a deposit on a first home is inconsistent with the sole purpose test which requires that super funds maintain benefits for members’ retirement or for insurance-related purposes,” she said.

“It is also inconsistent with the government’s own stated objective of superannuation to provide income in retirement.”

Rising mortgage debt is the biggest threat to super balances

From The New Daily.

New data suggests rising property prices are a threat to the retirement system, as many Australians use their superannuation balances to pay off their mortgages before they retire.

The latest investment update from NAB highlights that many Australians are concerned about ending their working lives in debt. It reported an increase in the number of respondents who feared a lack of retirement savings. It also found that paying down debt was the highest priority for the next 12 months.

Likewise, the 2017 Household, Income and Labour Dynamics in Australia (HILDA) report – widely reported in recent days for its concerning home ownership numbers – also showed that both men and women were spending considerable chunks of their super to pay debts.

It found that men paying down debts spent on average $240,000 to do so in 2015, or 58 per cent of their super, while men helping family members spent $108,500, around 84 per cent of super. Women paying down debt spent $120,500, or 70 per cent of super and those helping family spent $67,000, or 48 per cent of super.

Some men and women also spent up big on things for themselves, as the following table shows. However, men spent far more than women here, indicating the gender imbalance in superannuation accounts.

Ian Yates, chief executive of the Council on the Ageing (COTA), said rising property prices could force more people to pay down more mortgage debt on retirement in the future.

“People are paying off debts of not inconsequential amounts on retirement. The numbers doing it and the amounts used surprised me,” he told The New Daily.

“It’s a concerning trend and if people plan to use their super to pay off a mortgage then they are not using it to provide retirement income.”

He said this could result in the government being faced with a dilemma.

“Given the family home is untaxed, the increased use of concessionally-taxed superannuation to pay off homes in retirement would not be what the government intended,” he said.

That could mean governments would be forced to review both superannuation and housing policy as “both superannuation and the age pension are predicated on high levels of home ownership”.

The HILDA report also showed that both men and women are retiring later with the average age of women retirees reaching 63.8 years in 2015 and men 66.1 years.

Mr Yates said the rise in retirement ages, while partly due to desire to work longer, also had a negative financial driver.

“A lot of people got frightened by the market crash accompanying the financial crisis and decided they need a bigger financial buffer before they retire.”

For 16 years the HILDA survey, run by the University of Melbourne, has polled the same 17,000 Australians.

The report’s author, Professor Roger Wilkins, pointed to the falling home ownership levels among younger people. In 2014, approximately 25 per cent of men and women aged 18 to 39 were home owners, down from nearly 36 per cent in 2002.

Younger people with housing debt saw average mortgages up from $169,000 to $336,500 between 2002 and 2014.

That reality plus rising prices meaning people have to save longer before buying “could result in the superannuation system being thwarted in its aim to provide retirement income by rises in outstanding mortgage debt”, Professor Wilkins told The New Daily.